Mortgage rates fall below 7% after the collapse of two US banks

US mortgage rates have been rapidly increasing for over a year. In October 2022, the average rate for a 30-year home loan surged above 7 percent for the first time in two decades. After pulling back in the following months, mortgage rates rose to 7 percent again in early March. However, the recent failure of Silicon Valley Bank and Signature Bank pushed interest rates down.

The average rate for a 30-year fixed home loan fell to 6.57 percent on Monday, March 13, according to Mortgage News Daily. US mortgage rates went down from 7 percent to 6.76 percent on Wednesday, March 10, when Silicon Valley Bank (SVB) failed and was taken over by regulators. A few days later, Signature Bank, a popular lender in the cryptoindustry, was closed by New York regulators.

On the morning of March 10, SVB failed after a bank run when customers made large withdrawal requests that totaled $42 billion, the Wall Street Journal reports. The bank was unable to cover the outflows, and the Federal Deposit Insurance Corporation (FDIC) took control. The demise of two US banks increased economic uncertainty. Now, homebuyers may take advantage of a slight decrease in mortgage rates. 

“Treasury yields declined late last week, as market concerns over bank closures and the potential for broader ripple effects triggered a flight to safety in Treasury bonds. This decline pushed mortgage rates for all loan types lower,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. 

The recent decline in interest rates caused an increase in home loan applications. In the week ending March 10, the mortgage application volume increased 6.5 percent from one week earlier, according to data presented by Mortgage Bankers Association (MBA). There was also a slight increase in refinance activity. Refinance applications rose 5 percent last week. 

“Home-purchase applications increased for the second straight week but remained almost 40 percent below last year’s pace,” Kan said. “While lower rates should buoy housing demand, the financial market volatility may cause buyers to pause their decisions.”

Resources:

“Mortgage Applications Increase in Latest MBA Weekly Survey,” by Falen Taylor (Mortgage Bankers Association, 2023)

“Mortgage rates tumble in the wake of bank failures,” by Diana Olick (CNBC, 2023)

“Mortgage rates fall after banks fail,” by Jeff Ostrowski (Bankrate, 2023)

“What Happened With Silicon Valley Bank?” by Telis Demos (The Wall Street Journal 2023)